China’s e-commerce giant nears a major milestone

The value of merchandise that consumers will buy this year on Alibaba’s online retail platforms will be 1 trillion renminbi, or roughly $157.8 billion, Alibaba Group founder and chairman Jack Ma predicted this weekend at the company’s annual AliFest gathering in its home city of Hangzhou.

Those sales will take place on Taobao, China’s equivalent of eBay, and on Tmall, a platform Alibaba launched in 2008 for larger Chinese and Western brands targeting the rapidly growing Chinese middle class. Like eBay, Alibaba does not sell its own merchandise and earns fees from sellers. But Alibaba now appears to be much larger than eBay in sales volume: eBay reported $60.3 billion in 2011 global gross merchandise value, or GMV, the value of goods sold on all eBay sites. Alibaba did not report GMV for 2011, but says it passed the 100 billion RMB ($15.8 billion) mark in 2008, and expects to generate 10 times as much GMV this year.

When Ma took the stage Sunday to speak to an audience of some 2,500, mostly Taobao sellers, he received the kind of adoring welcome usually reserved for rock stars and top athletes. But despite projecting sales volume this year that would eclipse the economy of many of China’s provinces, Ma began his presentation by emphasizing the pressures that weigh on the Chinese economy.

He noted the ongoing financial crisis in Europe, President Barack Obama’s declared attention to bring jobs back to the United States and troubles in China’s banking sector.

“The world is undergoing deep and complex changes,” Ma said. “There are only more difficult times to come. We will not repeat the glory of yesterday.”

But Ma turned more optimistic later in his speech, explaining ways in which Alibaba planned to help the mostly small businesses that sell on Taobao, including by lending them money at no interest, as long as they repay the monthly loans. He said Alibaba has tested the loan program over the last few years, making loans to several thousand companies and perfecting technology for quickly assessing the creditworthiness of these smaller sellers who often have trouble getting loans from China’s banks. “You represent the future,” he told the audience, “and helping you is helping ourselves.”

Ma made only passing mention to the big changes going on in Alibaba’s corporate structure, noting that the company would reorganize into seven operating units. That’s the product of restructuring this spring that included Alibaba taking private the one piece of its business that had been publicly traded—the Alibaba.com trading platform that allows e-retailers in the United States and other countries place orders withmostly Chinese manufacturers.

In the course of the buyback transaction, Alibaba Group reported revenue of $2.3 billion in 2011, up from $1.3 billion in 2010 and $730 million in 2009, and that it had posted a $339 million profit in the 12 months through October 2011, a seven-fold increase from the previous 12-month period. In an unrelated transaction, Alibaba is in the process of buying back half of the 40% stake that Yahoo Inc. holds in Alibaba.

Despite his acknowledgement of the downbeat global economy, Ma closed his speech by expressing optimism that the kind of go-getters that sell on Taobao—“netrepeneurs” he calls them—will be the future of business in China. Along the way he sparked laughter and applause from the audience with provocative barbs aimed at the government and banks. He noted that government data was unreliable and alluded to the frustration with corruption—there’s been broad Internet commentary of late about government officials who wear $50,000 watches—by referring to officials who have to cover their watches.

Alluding to the intense competition to land spots at top Chinese universities, some of them reserved for children of the rich and powerful, Ma peered into the audience and asked, “Do we have anyone here who graduated from a prestigious university?” Few raised a hand. “China’s economy relies on people who graduated from average universities in China,” Ma said, drawing hearty applause.

“I’m confident and optimistic,” Ma said, telling the audience that they were like immigrants who would build a new era in China. “Transparency and sharing will be the cornerstone of our value system,” he said. “On this basis, netrepreneurs will drive forward progress in China.”

He also expects they will help take Alibaba to much higher levels. Alibaba expects the gross merchandise value of sales on its platforms to grow to 3 trillion RMB ($473 billion) within about five years, chief strategy officer Zeng Ming told reporters at a briefing this weekend. “That,” he said, “will be quite close to Wal-Mart’s sales.” Wal-Mart Stores Inc., the world’s largest retailer by revenue, reported worldwide net sales of $419 billion in 2011.